Notes on
Insurance Contracts: Legal Principles in Ghana
Insurance contracts are governed by both
general principles of contract law and specific legal principles unique to the
insurance industry. These principles ensure fairness, enforceability, and
mutual trust between the insurer and the insured. In Ghana, the regulatory
framework, including the Insurance Act, 2021 (Act 1061) and the
oversight of the National Insurance Commission (NIC), reinforces
these legal principles.
1.
Principle of Utmost Good Faith (Uberrima Fides)
Definition
Both parties to an insurance contract must disclose
all material facts honestly and completely.
This principle emphasizes transparency and mutual
trust.
Application
in Ghana
The insured must disclose any information that could
affect the insurer’s decision to accept the risk or determine the premium.
For example, a health insurance applicant must
disclose pre-existing medical conditions.
Insurers must provide clear and accurate policy terms
to the insured.
Consequences
of Breach
If the insured fails to disclose material facts, the
insurer may void the contract or deny claims.
In Ghana, disputes arising from non-disclosure are
often resolved through the NIC.
2.
Principle of Insurable Interest
Definition
The insured must have a financial or emotional stake
in the subject matter of the insurance contract.
This principle prevents individuals from insuring
risks in which they have no legitimate interest.
Examples
in Ghana
A person can insure their own property, such as a
house or car.
A business owner can insure the life of a key employee
under keyman insurance.
Legal
Enforcement
Under Ghanaian law, insurable interest must exist at
the time of taking the policy and, in some cases, at the time of loss
(e.g., in property insurance).
3.
Principle of Indemnity
Definition
The insured is compensated only to the extent of their
actual financial loss.
This principle ensures that insurance does not become
a source of profit.
Application
in Ghana
Most non-life insurance contracts, such as motor or
property insurance, are contracts of indemnity.
Example: If a car is insured for GHS 50,000 but
suffers damage worth GHS 30,000, the insurer compensates only GHS 30,000.
Exceptions
Life insurance and personal accident policies are not
governed by the principle of indemnity, as they pay predetermined amounts
regardless of actual loss.
4.
Principle of Contribution
Definition
If the same risk is insured with multiple insurers,
each insurer contributes to the loss proportionally.
Example in
Ghana
A commercial building insured with two companies for
GHS 100,000 each:
In case of a GHS 50,000 loss, each insurer pays GHS
25,000.
Purpose
Prevents the insured from recovering more than the
actual loss.
Regulation
by NIC
The NIC enforces rules to resolve disputes arising
from contributions among insurers.
5.
Principle of Subrogation
Definition
After compensating the insured, the insurer gains the
right to recover the amount from third parties responsible for the loss.
Example in
Ghana
If an insurer compensates a motorist for damage caused
by another driver, the insurer can sue the at-fault driver to recover the
amount paid.
Purpose
Prevents the insured from receiving double
compensation.
Legal
Basis
Subrogation rights are recognized under Ghanaian law
and enforced through the courts or arbitration.
6.
Principle of Proximate Cause
Definition
The proximate cause is the primary reason for the loss
or damage, without which the event would not have occurred.
Insurers are liable only if the proximate cause of the
loss is a risk covered by the policy.
Example in
Ghana
If a building insured against fire is damaged by a
fire caused by an earthquake (excluded risk), the claim may not be payable
unless fire is explicitly covered irrespective of cause.
Dispute
Resolution
The NIC or courts in Ghana often handle disputes
related to proximate cause.
7.
Principle of Loss Minimization
Definition
The insured has a duty to take reasonable steps to
minimize losses after an insured event occurs.
Application
in Ghana
A shop owner with fire insurance must attempt to
extinguish a fire or call the fire service promptly to reduce damage.
Impact on
Claims
Failure to mitigate losses may reduce or nullify claim
payouts.
8. Legal
Requirements for Insurance Contracts in Ghana
a.
Compliance with Contract Law
Insurance contracts must meet the requirements of
Ghanaian contract law, including offer, acceptance, consideration, and
legality of purpose.
b.
Mandatory Policy Documentation
Policies must be written in clear, understandable
language as per NIC regulations.
c.
Consumer Protection Measures
Insurers are required to inform policyholders of their
rights and responsibilities.
9.
Challenges in Applying Legal Principles in Ghana
a. Limited
Public Awareness
Many policyholders are unaware of their rights and
obligations under these principles.
b. Fraud
and Non-Disclosure
Instances of fraudulent claims and failure to disclose
material facts undermine the industry’s credibility.
c.
Enforcement Issues
Enforcement of principles such as contribution and
subrogation can be challenging, especially in cases involving multiple
insurers.
d.
Disputes over Proximate Cause
Determining the primary cause of loss often leads to
disagreements between insurers and policyholders.
10.
Conclusion
The legal principles governing insurance
contracts in Ghana provide a framework for fairness, efficiency, and
accountability. These principles, including utmost good faith, indemnity, and
subrogation, ensure that both insurers and policyholders fulfill their
obligations. However, addressing challenges such as limited awareness and
enforcement issues will be crucial for the continued development of Ghana's
insurance sector. Regulatory oversight by the NIC plays a vital role in
upholding these principles and fostering trust in the industry.
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